increasing values

The market has been showing insane value increases. Well, on paper it looks that way, but in reality that’s not what we’re seeing right now. Let’s take a deep look at the market today and also consider real estate trends we can glean from Facebook statuses. This big monthly post is long on purpose. You can scan it quickly or pour a cup of coffee and spend some time here. If you aren’t in Sacramento, I hope you can still find some value. Do you see any parallels to your market? Any thoughts?

Three real estate trends we can glean from Facebook:

1) Asking for inventory: I am seeing many posts from real estate agents saying, “I have buyers, but there aren’t any homes on the market”, or “Do you have any upcoming homes in XYZ city or neighborhood?”, or “There are only 11 listings in the entire zip code.” Even if we didn’t have actual numbers to show inventory is sparse, we could pick up on this reality by some of what we see on Facebook. This is a good reminder that data is not just about looking at sales.

2) Asking for rentals: Many in the real estate community and the general public are asking for rental inventory on social media. There are so many posts from tenants needing to find a home or agents and loan officers asking on behalf of someone. A person I know recently posted about trying to rent a home in Roseville only to have to compete with 23 other contracts on one house.

3) Announcing price improvements: This market is “hot”, but buyers are not biting on absurdly overpriced listings. This is why we still see Facebook posts telling of price reductions or “price improvements” (a softer way of saying the same thing). You might think we wouldn’t see such a thing in a “crazy hot” market, but we do.

Last month values increased no matter how we look at it. The median price, average sales price, and average price per sq ft all increased in Sacramento County, Placer County, and the region. This isn’t a surprise though because it’s what tends to happen in the spring. The mistake we can easily make though is to look at the median price rising nearly 5% last month and say things like, “Values increased by 5%.” Thus if we’re not careful we might claim values are increasing rapidly when in reality they simply got back to where they were at the height of summer before a lull in the fall.

While the market is said to be “hot” in the “Farm to Fork Capital of America”, let’s still remember the market is not doing the same thing at every price level. Inventory is incredibly sparse under $400,000, and that is putting tremendous pressure on values to increase, but in some higher price ranges and neighborhoods the market feels a bit flat. Yes, there are multiple offers on about anything that is priced right, but still we have to not confuse the aggressive feel of the market with rapid appreciation. In short, at the moment we are not seeing the type of rapid appreciation we had in 2013 at the height of the glory days of Blackstone. In all of this let’s remember too we’ve had value increases without much wage growth. Let’s keep rooting for wages and the economy to drive the market instead of anemic inventory and low interest rates.

Lastly, let’s remember the bulk of listings in 2016 hit the market between April and August, so my advice to buyers is to keep waiting for inventory to come (many buyers are feeling hopeless). I would advise sellers to price according to other properties that are actually getting into contract too instead of sensational real estate headlines.

SACRAMENTO COUNTY:

The median price increased to $323,500 (8.2% above February 2016).

The median price rose 6% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 6% in one month.

Sales volume in February 2017 was just about 1% higher than last year.

It took an average of 44 days to sell a home last month (one year ago in February 2016 it was taking 2 days longer to sell).

It took two days longer to sell in February compared to January (next month we should see stats show less days on market as spring unfolds).

FHA sales volume is down 6% this year compared to 2016 (but roughly 25% of all sales were FHA last month).

Only 3.8% of all sales were bank-owned and 2.3% were short sales.

The average price per sq ft was about $204 last month (about 2% higher than January, but 8% higher than last year).

The average sales price increased about 2.5% last month and is currently $348,892. This is 7.7% higher than last year.

Cash sales were 15% of all sales last month.

Some of my favorite images this month:

SACRAMENTO REGIONAL MARKET:

The median price increased to $355,600 (7.7% above February 2016).

The median price rose 4.8% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 4.8% in one month.

Sales volume in February 2017 was about 2% higher than last year. Sales volume in the region is up nearly 3% this year so far.

It took an average of 48 days to sell a home last month (one year ago in February 2016 it was taking 3 days longer to sell).

It took one day longer to sell in February compared to January (next month we should see stats show less days on market as spring unfolds).

FHA sales volume is down 6.7% this year compared to 2016 (but roughly 22% of all sales were FHA last month).

Only 3.4% of all sales were bank-owned and 2.5% were short sales.

The average price per sq ft was about $210 last month (about 1% higher than January, but 7% higher than last year).

The average sales price increased about 2% last month and is currently $387,105. This is 4.3% higher than last year.

Cash sales were 16% of all sales last month.

Some of my favorite images this month:

PLACER COUNTY:

The median price increased to $435,000 (4.8% above February 2016).

The median price rose 2.5% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 2.5% in one month.

Sales volume in February 2017 was about 9% higher than last year.

It took an average of 51 days to sell a home last month (one year ago in February 2016 it was taking 7 days longer to sell).

It took 1 less day to sell in February compared to January.

FHA sales volume is down 12.6% this year compared to 2016 (but roughly 17% of all sales were FHA last month).

Only 2.5% of all sales were bank-owned and 3.1% were short sales.

The average price per sq ft was about $219 last month (about 3.9% higher than January and 4.8% higher than last February).

The average sales price increased about 2.4% last month and is currently $478,589. This is 3.5% higher than last year.

January stats are down, but the market feels up. That’s normal at this time of year, but it can be confusing. Let’s focus on three things to keep in mind about the beginning of the year in real estate, and then let’s unpack the market. This post is long on purpose. You can scan it quickly or pour a cup of coffee and spend some time here. If you aren’t in Sacramento, I hope you can still find some value. Do you see any parallels to your market? Any thoughts?

3 things to keep in mind about the beginning of the year in real estate

1) Recent sales lag the real trend: At this time of year it’s important to remember that the most recent sales don’t necessarily tell us about the current market. It’s like a pregnancy test. You might be pregnant, but an over-the-counter test won’t tell you that for two weeks even though there has been a change in your body. Similarly, the market may have changed, but we may not see the price change in the stats for a month or two.

2) Insane appreciation: We are seeing multiple offers, but in many cases it seems the market is trying to get back to prices from the peak of summer rather than showing rapid value increases like we saw in 2013. I recently heard about a property getting into contract 5% above sales from December, but that doesn’t mean the market actually increased in value by 5% over the past month. It could simply be the market is pulling itself out of the fall seasonal lull and getting back to prices from the summer (where they were 5% higher).

3) We see the market in the pendings: If we want to see the current market we have to look at the pendings and listings. Let’s obviously give strong weight to properties that have actually sold, but we cannot ignore pendings to help us gauge the direction of prices for the current market. If we rely too heavily on sales from December and January alone, we might essentially undervalue properties because the market usually ticks up during the early part of the year (which we would see in the pendings). In other words, today’s higher pendings will close over the next 30-60 days and then show value increases on paper for March and April. But the truth is the value increases are actually happening right now. It just takes skill to be able to see the market before the change shows up in the stats. This is why have to give way more respect to pendings. I realize we don’t know the exact price of pending sales though, and that’s why we have to look at many examples of pendings rather than just one. In some markets pendings get into contract at ridiculous levels too, so we have to sift if the prices are realistic (that makes it even more tricky). If there are few listings in a neighborhood, we can look at competitive neighborhoods for more data because we don’t want to base the entire market on just one listing or pending. Let’s not forget to be in tune with where sales left off at the end of summer too.

Appraisal class: I’m teaching a 3-hour class next week on Feb 22 at SAR called How to Think Like an Appraiser. I’d love to have you come. Details here.

A Market Summary: The market is always interesting in the early part of the year because we are in a place where values have changed, but we don’t see the change in the sales stats yet. So there is a disconnect between reporting slow January data and how the market feels right now. What I mean is the median price softened last month by 3%, sales volume declined by 27% from December, and it took 3 days longer to sell a house than the previous month. If we didn’t know any better we’d say the market was tanking. But let’s back up and think through this.

January sales stats aren’t often very sexy because they represent properties that went into contract in November and December. Do you remember Thanksgiving and Christmas? Yeah, you probably weren’t looking for a house, so it’s not a surprise to see sales stats sag from those months. At times the real estate community doesn’t like to admit the market shows a price lull during the fall, but a lull happens nearly every single year. So if we’re not careful we can focus on sales volume declining last month by 27% without realizing that’s normal to see every January (see graphs below). The irony is it’s easy to say we are in trouble because sales volume declined, but this January actually had its strongest month of volume in 4 years. We might also be concerned about sales showing a good 5% or so decline from the height of summer, but that’s not unusual (see graphs). Or we can freak out about sales taking longer to sell, but over the next month or two we are bound to see this stat change as it will begin to take less time to sell during the spring.

The truth is the market is beginning to heat up. Right now we have an atmosphere of multiple offers in many price ranges. Let’s remember though the market feels more aggressive than actual value increases at times. Moreover, it’s easy to let news of a “hot” real estate market or anemic housing inventory trump actual market data. Thus I would caution sellers to price according to the market instead of the headlines. Just because inventory is spare does not mean you can get whatever price you want too. I would also remind buyers that the bulk of listings don’t usually come on the market for a few months (April through August tends to be the peak).

Sacramento County:

The median price softened to $305,000 (down 7% from summer).

The median price is currently 8.9% above January 2016.

Sales volume was stronger in January than it’s been in 4 years. We could focus on sales volume declining by 27% from December, but volume always declines from December. See the graphs below.

Sales volume in January 2017 was 14% higher than last year.

One year ago in January it was taking 4 days longer to sell.

FHA sales volume is down 6% this year compared to 2016 (but 27% of all sales were FHA last month).

Only 3% of all sales were bank-owned last month and 2.4% were short sales.

The average price per sq ft was about $202 last month (about the same as December, but 8% higher than last year).

The average sales price softened 1% last month and is currently $339,028. This is down 5% from the height of summer (but is 9% higher than last year).

Cash sales were 15% of all sales last month.

Some of my favorite images this month:

SACRAMENTO REGIONAL MARKET:

The median price softened to $339,000 (down 8% from summer).

The median price is currently 5% above January 2016.

Sales volume in the region is up about 2% over the past year.

Sales volume in January 2017 was 7.6% higher than last year.

One year ago in January it was taking 3 days longer to sell.

It took an average of 47 days to sell a home last month.

FHA sales volume is down almost 7% over the past year (but still 23% of all sales were FHA last month).

The average price per sq ft was about $208 last month. This is down about 1.5% from summer, but 5.7% higher than last year.

The average sales price softened 2% last month and is currently $380,151. This is down about 6.5% from summer (but is 5.9% higher than last year).

Cash sales were 16% of all sales last month.

Some of my favorite images this month:

PLACER COUNTY:

The median price is $424,500 (down 3% from the height of summer).

The median price is currently 4.8% above January 2016.

Sales volume in Placer County was down almost 13% this January compared to last January.

Sales volume in January was nearly identical in volume to January 2014 and January 2015.

Housing supply is down 4% from last year.

It took an avg of 52 days to sell a home last month (same as Jan 2016).

The average price per sq ft was about $211 last month. This is down about 2.5% from summer, but about 5% higher than last year.

The average sales price softened 1% last month and is currently $467,276. This is down about 3% from summer (but is 3% higher than last year).

Bank-owned sales were 2.4% of all sales last month (short sales were 1.3%).

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